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Loans and Asset Quality Information
 3 Months Ended
Mar. 31, 2012
Loans And Asset Quality Information  
Loans and Asset Quality Information

Note 8 – Loans and Asset Quality Information

 

The loans and foreclosed real estate that were acquired in FDIC-assisted transactions are covered by loss share agreements between the FDIC and the Company’s banking subsidiary, First Bank, which afford First Bank significant loss protection. (See the Company’s 2011 Annual Report on Form 10-K for more information regarding these transactions.) Because of the loss protection provided by the FDIC, the risk of the Cooperative Bank and The Bank of Asheville loans and foreclosed real estate are significantly different from those assets not covered under the loss share agreements. Accordingly, the Company presents separately loans subject to the loss share agreements as “covered loans” in the information below and loans that are not subject to the loss share agreements as “non-covered loans.”

 

The following is a summary of the major categories of total loans outstanding:

 

 

($ in thousands)

   March 31, 2012     December 31, 2011     March 31, 2011  
    Amount     Percentage     Amount     Percentage     Amount     Percentage  
All loans (non-covered and covered):                                                
                                                 
Commercial, financial, and agricultural   $ 159,496       7 %     162,099       7 %     162,868       7 %
Real estate – construction, land development & other land loans     355,709       15 %     363,079       15 %     434,566       18 %
Real estate – mortgage – residential (1-4 family) first mortgages     812,878       33 %     805,542       33 %     804,278       32 %
Real estate – mortgage – home equity loans / lines of credit     255,955       10 %     256,509       11 %     267,515       11 %
Real estate – mortgage – commercial and other     775,610       32 %     762,895       31 %     733,087       29 %
Installment loans to individuals     75,636       3 %     78,982       3 %     82,716       3 %
Subtotal     2,435,284       100 %     2,429,106       100 %     2,485,030       100 %
Unamortized net deferred loan costs     1,340               1,280               1,180          
Total loans   $ 2,436,624               2,430,386               2,486,210          

 

As of March 31, 2012, December 31, 2011 and March 31, 2011, net loans include unamortized premiums of $833,000, $949,000, and $1,298,000, respectively, related to acquired loans.

 

The following is a summary of the major categories of non-covered loans outstanding:

 

 

($ in thousands)

   March 31, 2012     December 31, 2011     March 31, 2011  
    Amount     Percentage     Amount     Percentage     Amount     Percentage  
Non-covered loans:                                                
                                                 
Commercial, financial, and agricultural   $ 151,148       7 %     152,627       8 %     146,838       7 %
Real estate – construction, land development & other land loans     287,833       14 %     290,983       14 %     330,389       16 %
Real estate – mortgage – residential (1-4 family) first mortgages     659,946       31 %     646,616       31 %     622,108       30 %
Real estate – mortgage – home equity loans / lines of credit     233,915       11 %     233,171       11 %     241,443       12 %
Real estate – mortgage – commercial and other     685,734       33 %     666,882       32 %     624,699       31 %
Installment loans to individuals     74,608       4 %     77,593       4 %     79,341       4 %
Subtotal     2,093,184       100 %     2,067,872       100 %     2,044,818       100 %
Unamortized net deferred loan costs     1,340               1,280               1,180          
Total non-covered loans   $ 2,094,524               2,069,152               2,045,998          

 

The carrying amount of the covered loans at March 31, 2012 consisted of impaired and nonimpaired purchased loans, as follows:

 

($ in thousands)
   Impaired
Purchased
Loans –
Carrying
Value		     Impaired
Purchased
Loans –
Unpaid
Principal
Balance		     Nonimpaired
Purchased
Loans –
Carrying
Value		     Nonimpaired
Purchased
Loans -
Unpaid
Principal
Balance		     Total
Covered
Loans –
Carrying
Value		     Total
Covered
Loans –
Unpaid
Principal
Balance		  
Covered loans:                                                
Commercial, financial, and agricultural   $ 69       150       8,279       10,513       8,348       10,663  
Real estate – construction, land development & other land loans     1,881       3,985       65,995       114,241       67,876       118,226  
Real estate – mortgage – residential (1-4 family) first mortgages     841       1,926       152,091       182,035       152,932       183,961  
Real estate – mortgage – home equity loans / lines of credit     16       311       22,024       27,724       22,040       28,035  
Real estate – mortgage – commercial and other     2,392       4,167       87,484       118,559       89,876       122,726  
Installment loans to individuals     3       5       1,025       1,121       1,028       1,126  
Total   $ 5,202       10,544       336,898       454,193       342,100       464,737  

 

The carrying amount of the covered loans at December 31, 2011 consisted of impaired and nonimpaired purchased loans, as follows:

 

($ in thousands)
   Impaired
Purchased
Loans –
Carrying
Value		     Impaired
Purchased
Loans –
Unpaid
Principal
Balance		     Nonimpaired
Purchased
Loans –
Carrying
Value		     Nonimpaired
Purchased
Loans -
Unpaid
Principal
Balance		     Total
Covered
Loans –
Carrying
Value		     Total
Covered
Loans –
Unpaid
Principal
Balance		  
Covered loans:                                                
Commercial, financial, and agricultural   $ 69       319       9,403       11,736       9,472       12,055  
Real estate – construction, land development & other land loans     3,865       8,505       68,231       115,489       72,096       123,994  
Real estate – mortgage – residential (1-4 family) first mortgages     1,214       2,639       157,712       189,436       158,926       192,075  
Real estate – mortgage – home equity loans / lines of credit     127       577       23,211       29,249       23,338       29,826  
Real estate – mortgage – commercial and other     2,585       4,986       93,428       125,450       96,013       130,436  
Installment loans to individuals     4       6       1,385       1,583       1,389       1,589  
Total   $ 7,864       17,032       353,370       472,943       361,234       489,975  

 

The following table presents information regarding covered purchased nonimpaired loans since December 31, 2010. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond.

 

($ in thousands)

 

      
Carrying amount of nonimpaired covered loans at December 31, 2010     366,521  
Additions due to acquisition of The Bank of Asheville (at fair value)     84,623  
Principal repayments     (40,576 )
Transfers to foreclosed real estate     (53,999 )
Loan charge-offs     (14,797 )
Accretion of loan discount     11,598  
Carrying amount of nonimpaired covered loans at December 31, 2011   $ 353,370  
Principal repayments     (12,082 )
Transfers to foreclosed real estate     (4,535 )
Loan charge-offs     (2,433 )
Accretion of loan discount     2,578  
Carrying amount of nonimpaired covered loans at March 31, 2012   $ 336,898  

 

As reflected in the table above, the Company accreted $2,578,000 of the loan discount on purchased nonimpaired loans into interest income during the first quarter of 2012. As of March 31, 2012, there was remaining loan discount of $86,093,000 related to purchased nonimpaired loans. If these loans continue to be repaid by the borrowers, the Company will accrete the remaining loan discount into interest income over the lives of the respective loans. In such circumstances, a corresponding entry to reduce the indemnification asset will be recorded amounting to 80% of the loan discount accretion, which reduces noninterest income.

 

The following table presents information regarding all purchased impaired loans since December 31, 2010, substantially all of which are covered loans. The Company has applied the cost recovery method to all purchased impaired loans at their respective acquisition dates due to the uncertainty as to the timing of expected cash flows, as reflected in the following table.

 

 

($ in thousands)

 

 

 

Purchased Impaired Loans

   Contractual
Principal
Receivable		     Fair Market
Value
Adjustment –
Write Down
(Nonaccretable
Difference)		     Carrying
Amount		  
Balance at December 31, 2010   $ 8,080       2,329       5,751  
Additions due to acquisition of The Bank of Asheville     38,452       20,807       17,645  
Change due to payments received     (1,620 )     (327 )     (1,293 )
Transfer to foreclosed real estate     (19,881 )     (9,308 )     (10,573 )
Change due to loan charge-off     (7,522 )     (4,193 )     (3,329 )
Other     807       224       583  
Balance at December 31, 2011   $ 18,316       9,532       8,784  
Change due to payments received     (238 )     (96 )     (142 )
Transfer to foreclosed real estate     (7,334 )     (3,477 )     (3,857 )
Change due to loan charge-off     (109 )     (109 )     —  
Other     (1,391 )     (1,808 )     417  
Balance at March 31, 2012   $ 9,244       4,042       5,202  

 

Each of the purchased impaired loans is on nonaccrual status and considered to be impaired. Because of the uncertainty of the expected cash flows, the Company is accounting for each purchased impaired loan under the cost recovery method, in which all cash payments are applied to principal. Thus, there is no accretable yield associated with the above loans. During the first quarter of 2012 and 2011, the Company received no payments that exceeded the initial carrying amount of the purchased impaired loans.

 

Nonperforming assets are defined as nonaccrual loans, restructured loans, loans past due 90 or more days and still accruing interest, and other real estate. Nonperforming assets are summarized as follows:

 

 

ASSET QUALITY DATA ($ in thousands)

   March 31,
2012		     December 31,
2011		     March 31,
2011		  
                   
Non-covered nonperforming assets                        
Nonaccrual loans   $ 69,665       73,566       69,250  
Restructured loans - accruing     10,619       11,720       19,843  
Accruing loans > 90 days past due     —       —       —  
Total non-covered nonperforming loans     80,284       85,286       89,093  
Other real estate     36,838       37,023       26,961  
Total non-covered nonperforming assets   $ 117,122       122,309       116,054  
                         
Covered nonperforming assets                        
Nonaccrual loans (1)   $ 42,369       41,472       56,862  
Restructured loans - accruing     13,158       14,218       16,238  
Accruing loans > 90 days past due     —       —       —  
Total covered nonperforming loans     55,527       55,690       73,100  
Other real estate     79,535       85,272       95,868  
Total covered nonperforming assets   $ 135,062       140,962       168,968  
                         
Total nonperforming assets   $ 252,184       263,271       285,022  

 

 

(1) At March 31, 2012, December 31, 2011, and March 31, 2011, the contractual balance of the nonaccrual loans covered by FDIC loss share agreements was $68.3 million, $69.0 million, and $106.5 million, respectively.

 

The following table presents information related to the Company’s impaired loans.

 

 

($ in thousands)

   As of /for the
three months
ended
March 31,
2012		     As of /for the
year ended
December 31,
2011		     As of /for the
three months
ended
March 31,
2011		  
Impaired loans at period end                        
Non-covered   $ 80,284       85,286       89,093  
Covered     55,527       55,690       73,100  
Total impaired loans at period end   $ 135,811       140,976       162,193  
                         
Average amount of impaired loans for period                        
Non-covered   $ 82,788       89,023       92,548  
Covered     55,609       63,289       72,962  
Average amount of impaired loans for period – total   $ 138,397       152,312       165,510  
                         
Allowance for loan losses related to impaired loans at period end                        
Non-covered   $ 11,662       5,804       6,289  
Covered     5,308       5,106       6,206  
Allowance for loan losses related to impaired loans - total   $ 16,970       10,910       12,495  
                         
Amount of impaired loans with no related allowance at period end                        
Non-covered   $ 16,717       35,721       40,169  
Covered     36,756       43,702       57,785  
Total impaired loans with no related allowance at period end   $ 53,473       79,423       97,954  
                         
     

 

All of the impaired loans noted in the table above were on nonaccrual status at each respective period end except for those classified as restructured loans (see table on previous page for balances).

 

The remaining tables in this note present information derived from the Company’s allowance for loan loss model. Relevant accounting guidance requires certain disclosures to be disaggregated based on how the Company develops its allowance for loan losses and manages its credit exposure. This model combines loan types in a different manner than the tables previously presented.

 

The following table presents the Company’s nonaccrual loans as of March 31, 2012.

 

($ in thousands)   Non-covered     Covered     Total  
Commercial, financial, and agricultural:                        
Commercial – unsecured   $ 30       —       30  
Commercial – secured     1,751       24       1,775  
Secured by inventory and accounts receivable     822       —       822  
                         
Real estate – construction, land development & other land loans     20,469       19,002       39,471  
                         
Real estate – residential, farmland and multi-family     25,819       10,898       36,717  
                         
Real estate – home equity lines of credit     2,909       938       3,847  
                         
Real estate – commercial     15,017       11,497       26,514  
                         
Consumer     2,848       10       2,858  
Total   $ 69,665       42,369       112,034  
                         

 

The following table presents the Company’s nonaccrual loans as of December 31, 2011.

 

($ in thousands)   Non-covered     Covered     Total  
Commercial, financial, and agricultural:                        
Commercial - unsecured   $ 452       —       452  
Commercial - secured     2,190       358       2,548  
Secured by inventory and accounts receivable     588       102       690  
                         
Real estate – construction, land development & other land loans     22,772       21,204       43,976  
                         
Real estate – residential, farmland and multi-family     25,430       11,050       36,480  
                         
Real estate – home equity lines of credit     3,161       1,068       4,229  
                         
Real estate - commercial     16,203       7,459       23,662  
                         
Consumer     2,770       231       3,001  
Total   $ 73,566       41,472       115,038  
                         

 

The following table presents an analysis of the payment status of the Company’s loans as of March 31, 2012.

 

($ in thousands)
   30-59
Days Past
Due		     60-89 Days
Past Due		     Nonaccrual
Loans		     Current     Total Loans
Receivable		  
Non-covered loans                                        
Commercial, financial, and agricultural:                                        
Commercial - unsecured   $ 178       82       30       37,459       37,749  
Commercial - secured     1,222       130       1,751       107,088       110,191  
Secured by inventory and accounts receivable     33       —       822       21,415       22,270  
                                         
Real estate – construction, land development & other land loans     923       219       20,469       222,150       243,761  
                                         
Real estate – residential, farmland, and multi-family     7,886       2,439       25,819       773,061       809,205  
                                         
Real estate – home equity lines of credit     314       210       2,909       204,897       208,330  
                                         
Real estate - commercial     948       545       15,017       588,775       605,285  
                                         
Consumer     433       181       2,848       52,931       56,393  
Total non-covered   $ 11,937       3,806       69,665       2,007,776       2,093,184  
Unamortized net deferred loan costs                                     1,340  
Total non-covered loans                                   $ 2,094,524  
                                         
Covered loans   $ 7,014       2,274       42,369       290,443       342,100  
                                         
Total loans   $ 18,951       6,080       112,034       2,298,219       2,436,624  

 

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at March 31, 2012.

 

The following table presents an analysis of the payment status of the Company’s loans as of December 31, 2011.

 

($ in thousands)
   30-59
Days Past
Due		     60-89 Days
Past Due		     Nonaccrual
Loans		     Current     Total Loans
Receivable		  
Non-covered loans                                        
Commercial, financial, and agricultural:                                        
Commercial - unsecured   $ 67       591       452       37,668       38,778  
Commercial - secured     672       207       2,190       108,682       111,751  
Secured by inventory and accounts receivable     247       —       588       20,993       21,828  
                                         
Real estate – construction, land development & other land loans     1,250       1,411       22,772       221,372       246,805  
                                         
Real estate – residential, farmland, and multi-family     9,751       4,259       25,430       756,215       795,655  
                                         
Real estate – home equity lines of credit     1,126       237       3,161       202,912       207,436  
                                         
Real estate - commercial     2,620       1,006       16,203       567,354       587,183  
                                         
Consumer     657       286       2,770       54,723       58,436  
Total non-covered   $ 16,390       7,997       73,566       1,969,919       2,067,872  
Unamortized net deferred loan costs                                     1,280  
Total non-covered loans                                   $ 2,069,152  
                                         
Covered loans   $ 6,511       3,388       41,472       309,863       361,234  
                                         
Total loans   $ 22,901       11,385       115,038       2,279,782       2,430,386  

 

The Company had no non-covered or covered loans that were past due greater than 90 days and accruing interest at December 31, 2011.

 

The following table presents the activity in the allowance for loan losses for non-covered loans for the three months ended March 31, 2012.

 

($ in thousands)
   Commercial,
Financial,
and
Agricultural		     Real Estate –
Construction,
Land
Development, &
Other Land Loans		     Real Estate –
Residential,
Farmland,
and Multi-
family		     Real Estate
– Home
Equity
Lines of
Credit		     Real Estate –
Commercial
and Other		     Consumer     Unallo-
cated		     Total  
                                                 
Beginning balance   $ 3,780       11,306       13,532       1,690       3,414       1,872       16       35,610  
Charge-offs     (1,318 )     (2,678 )     (2,091 )     (451 )     (1,365 )     (352 )     —       (8,255 )
Recoveries     16       188       194       34       41       70       —       543  
Provisions     2,476       7,603       3,734       859       3,647       236       2       18,557  
Ending balance   $ 4,954       16,419       15,369       2,132       5,737       1,826       18       46,455  
                                                                 
Ending balances: Allowance for loan losses
                                                         
Individually evaluated for impairment   $ 869       3,473       1,926       406       1,885       —       —       8,559  
                                                                 
Collectively evaluated for impairment   $ 4,085       12,946       13,443       1,726       3,852       1,826       18       37,896  
                                                                 
Loans acquired with deteriorated credit quality   $ —       —       —       —       —       —       —       —  
                                                                 
Loans receivable:
                                                                 
Ending balance – total   $ 170,210       243,761       809,205       208,330       605,285       56,393       —       2,093,184  
                                                                 
Ending balances: Loans
                                                                 
Individually evaluated for impairment   $ 1,011       24,746       14,366       1,331       25,263       —       —       66,717  
                                                                 
Collectively evaluated for impairment   $ 169,199       219,015       794,839       206,999       580,022       56,393       —       2,026,467  
                                                                 
Loans acquired with deteriorated credit quality   $ —       —       —       —       —       —       —       —  

 

The following table presents the activity in the allowance for loan losses for non-covered loans for the year ended December 31, 2011.

 

($ in thousands)
   Commercial,
Financial, and
Agricultural		     Real Estate –
Construction,
Land
Development, &
Other Land
Loans		     Real Estate –
Residential,
Farmland,
and Multi-
family		     Real
Estate –
Home
Equity
Lines of
Credit		     Real Estate –
Commercial
and Other		     Consumer     Unallo-
cated		     Total  
                                                 
                                                                 
Beginning balance   $ 4,731       12,520       11,283       3,634       3,972       1,961       174       38,275  
Charge-offs     (2,703 )     (16,240 )     (9,045 )     (1,147 )     (3,355 )     (845 )     (524 )     (33,859 )
Recoveries     389       1,142       719       107       37       182       93       2,669  
Provisions     1,363       13,884       10,575       (904 )     2,760       574       273       28,525  
Ending balance   $ 3,780       11,306       13,532       1,690       3,414       1,872       16       35,610  
                                                                 
Ending balances: Allowance for loan losses
                                                         
Individually evaluated for impairment   $ 60       607       150       —       200       —       —       1,017  
                                                                 
Collectively evaluated for impairment   $ 3,720       10,699       13,382       1,690       3,214       1,872       16       34,593  
                                                                 
Loans acquired with deteriorated credit quality   $ —       —       —       —       —       —       —       —  
                                                                 
Loans receivable:
                                                                 
Ending balance – total   $ 172,357       246,805       795,655       207,436       587,183       58,436       —       2,067,872  
                                                                 
Ending balances: Loans
                                                                 
Individually evaluated for impairment   $ 2,526       34,750       11,880       527       30,846       12       —       80,541  
                                                                 
Collectively evaluated for impairment   $ 169,831       212,055       783,775       206,909       556,337       58,424       —       1,987,331  
                                                                 
Loans acquired with deteriorated credit quality   $ —       920       —       —       —       —       —       920  

 

 

The following table presents the activity in the allowance for loan losses for non-covered loans for the three months ended March 31, 2011.

 

($ in thousands)
   Commercial,
Financial, and
Agricultural		     Real Estate –
Construction,
Land
Development,
& Other Land
Loans		     Real Estate –
Residential,
Farmland,
and Multi-
family		     Real Estate
– Home
Equity
Lines of
Credit		     Real Estate –
Commercial
and Other		     Consumer     Unallo-
cated		     Total  
                                                                 
Beginning balance   $ 4,731       12,520       11,283       3,634       3,972       1,961       174       38,275  
Charge-offs     (1,156 )     (3,993 )     (3,348 )     (623 )     (1,067 )     (203 )     (115 )     (10,505 )
Recoveries     8       32       232       6       28       83       44       433  
Provisions     559       1,644       4,296       342       426       382       (79 )     7,570  
Ending balance   $ 4,142       10,203       12,463       3,359       3,359       2,223       24       35,773  
                                                                 
Ending balances: Allowance for loan losses
 
Individually evaluated for impairment   $ 200       1,688       1,065       —       250       —       —       3,203  
                                                                 
Collectively evaluated for impairment   $ 3,942       8,515       11,398       3,359       3,109       2,223       24       32,570  
                                                                 
Loans acquired with deteriorated credit quality   $ —       —       —       —       —       —       —       —  
                                                                 
Loans receivable:
                                                                 
Ending balance – total   $ 165,250       290,468       762,235       212,084       554,360       60,421       —       2,044,818  
                                                                 
Ending balances: Loans
                                                                 
Individually evaluated for impairment   $ 2,212       48,484       11,057       531       32,899       18       —       95,201  
                                                                 
Collectively evaluated for impairment   $ 163,038       241,984       751,178       211,553       521,461       60,403       —       1,949,617  
                                                                 
Loans acquired with deteriorated credit quality   $ —       1,173       —       —       —       —       —       1,173  

 

The following table presents the activity in the allowance for loan losses for covered loans for the three months ended March 31, 2012.

 

($ in thousands)   Covered Loans  
       
As of and for the three months ended March, 31 2012
Beginning balance   $ 5,808  
Charge-offs     (2,434 )
Recoveries     —  
Provisions     2,998  
Ending balance   $ 6,372  
         
Ending balances as of March 31, 2012: Allowance for loan losses
 
Individually evaluated for impairment   $ 6,274  
Collectively evaluated for impairment     —  
Loans acquired with deteriorated credit quality     98  
         
Loans receivable as of March 31, 2012:
         
Ending balance – total   $ 342,100  
         
Ending balances as of March 31, 2012: Loans
         
Individually evaluated for impairment   $ 49,244  
Collectively evaluated for impairment     292,856  
Loans acquired with deteriorated credit quality     5,202  

 

The following table presents the activity in the allowance for loan losses for covered loans for the year ended December 31, 2011.

 

($ in thousands)   Covered Loans  
       
As of and for the year ended December 31, 2011
Beginning balance   $ 11,155  
Charge-offs     (18,123 )
Recoveries     —  
Provisions     12,776  
Ending balance   $ 5,808  
         
Ending balances as of December 31, 2011: Allowance for loan losses
 
Individually evaluated for impairment   $ 5,481  
Collectively evaluated for impairment     —  
Loans acquired with deteriorated credit quality     327  
         
Loans receivable as of December 31, 2011:
         
Ending balance – total   $ 361,234  
         
Ending balances as of December 31, 2011: Loans
         
Individually evaluated for impairment   $ 44,723  
Collectively evaluated for impairment     316,511  
Loans acquired with deteriorated credit quality     7,864  

 

The following table presents the activity in the allowance for loan losses for covered loans for the three months ended March 31, 2011.

 

($ in thousands)   Covered Loans  
       
As of and for the three months ended March 31, 2011
Beginning balance   $ 11,155  
Charge-offs     (7,926 )
Recoveries     —  
Provisions     3,773  
Ending balance   $ 7,002  
         
Ending balances as of March 31, 2011: Allowance for loan losses
 
Individually evaluated for impairment   $ 7,002  
Collectively evaluated for impairment     —  
Loans acquired with deteriorated credit quality     —  
         
Loans receivable as of March 31, 2011:
         
Ending balance – total   $ 440,212  
         
Ending balances as of March 31, 2011: Loans
         
Individually evaluated for impairment   $ 50,180  
Collectively evaluated for impairment     390,032  
Loans acquired with deteriorated credit quality     20,438  

The following table presents the Company’s impaired loans as of March 31, 2012.

 

($ in thousands)
   Recorded
Investment		     Unpaid
Principal
Balance		     Related
Allowance		     Average
Recorded
Investment		  
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural:                                
Commercial - unsecured   $ —       —       —       —  
Commercial - secured     69       225       —       182  
Secured by inventory and accounts receivable     —       —       —       14  
                                 
Real estate – construction, land development & other land loans     4,921       7,672       —       10,013  
                                 
Real estate – residential, farmland, and multi-family     1,832       2,057       —       2,637  
                                 
Real estate – home equity lines of credit     —       —       —       23  
                                 
Real estate – commercial     9,895       11,033       —       13,345  
                                 
Consumer     —       —       —       6  
Total non-covered impaired loans with no allowance   $ 16,717       20,987       —       26,220  
                                 
Total covered impaired loans with no allowance   $ 36,756       67,281       —       40,229  
                                 
Total impaired loans with no allowance recorded   $ 53,473       88,268       —       66,449  
                                 
Non-covered loans with an allowance recorded:                        
Commercial, financial, and agricultural:                                
Commercial - unsecured   $ 30       30       7       241  
Commercial - secured     1,683       1,835       279       1,789  
Secured by inventory and accounts receivable     822       1,308       246       692  
                                 
Real estate – construction, land development & other land loans     17,564       21,251       5,692       13,963  
                                 
Real estate – residential, farmland, and multi-family     26,438       29,032       3,484       25,449  
                                 
Real estate – home equity lines of credit     2,909       3,186       111       3,012  
                                 
Real estate – commercial     11,273       13,805       1,350       8,619  
                                 
Consumer     2,848       2,881       493       2,803  
Total non-covered impaired loans with allowance   $ 63,567       73,328       11,662       56,568  
                                 
Total covered impaired loans with allowance   $ 18,771       24,362       5,308       15,380  
                                 
Total impaired loans with an allowance recorded   $ 82,338       97,690       16,970       71,948  

 

Interest income recorded on non-covered and covered impaired loans during the three months ended March 31, 2012 is considered insignificant.

 

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

 

The following table presents the Company’s impaired loans as of December 31, 2011.

 

($ in thousands)
   Recorded
Investment		     Unpaid
Principal
Balance		     Related
Allowance		     Average
Recorded
Investment		  
Non-covered loans with no related allowance recorded:
Commercial, financial, and agricultural:                                
Commercial - unsecured   $ —       —       —       —  
Commercial - secured     295       478       —       504  
Secured by inventory and accounts receivable     27       493       —       124  
                                 
Real estate – construction, land development & other land loans     15,105       20,941       —       17,876  
                                 
Real estate – residential, farmland, and multi-family     3,442       4,741       —       5,278  
                                 
Real estate – home equity lines of credit     46       300       —       79  
                                 
Real estate – commercial     16,794       18,817       —       13,359  
                                 
Consumer     12       39       —       15  
Total non-covered impaired loans with no allowance   $ 35,721       45,809       —       37,235  
                                 
Total covered impaired loans with no allowance   $ 43,702       78,578       —       49,030  
                                 
Total impaired loans with no allowance recorded   $ 79,423       124,387       —       86,265  
                                 
Non-covered loans with an allowance recorded:                        
Commercial, financial, and agricultural:                                
Commercial - unsecured   $ 452       454       59       226  
Commercial - secured     1,895       1,899       295       1,427  
Secured by inventory and accounts receivable     561       571       156       391  
                                 
Real estate – construction, land development & other land loans     10,360       12,606       2,244       15,782  
                                 
Real estate – residential, farmland, and multi-family     24,460       26,153       2,169       22,487  
                                 
Real estate – home equity lines of credit     3,115       3,141       117       2,544  
                                 
Real estate – commercial     5,965       6,421       283       6,602  
                                 
Consumer     2,757       2,759       481       2,329  
Total non-covered impaired loans with allowance   $ 49,565       54,004       5,804       51,788  
                                 
Total covered impaired loans with allowance   $ 11,988       15,670       5,106       14,259  
                                 
Total impaired loans with an allowance recorded   $ 61,553       69,674       10,910       66,047  

 

Interest income recorded on non-covered and covered impaired loans during the year ended December 31, 2011 is considered insignificant.

 

The related allowance listed above includes both reserves on loans specifically reviewed for impairment and general reserves on impaired loans that were not specifically reviewed for impairment.

 

The Company tracks credit quality based on its internal risk ratings. Upon origination a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. Loans that are risk-graded as substandard during the origination process are declined. After loans are initially graded, they are monitored monthly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.

 

The following describes the Company’s internal risk grades in ascending order of likelihood of loss:

 

  Numerical Risk Grade Description
Pass:  
  1 Cash secured loans.
  2 Non-cash secured loans that have no minor or major exceptions to the lending guidelines.
  3 Non-cash secured loans that have no major exceptions to the lending guidelines.
Weak Pass:  
  4 Non-cash secured loans that have minor or major exceptions to the lending guidelines, but the exceptions are properly mitigated.
Watch or Standard:  
  9 Loans that meet the guidelines for a Risk Graded 5 loan, except the collateral coverage is sufficient to satisfy the debt with no risk of loss under reasonable circumstances. This category also includes all loans to insiders and any other loan that management elects to monitor on the watch list.
Special Mention:  
  5 Existing loans with major exceptions that cannot be mitigated.
Classified:  
  6 Loans that have a well-defined weakness that may jeopardize the liquidation of the debt if deficiencies are not corrected.
  7 Loans that have a well-defined weakness that make the collection or liquidation improbable.
  8 Loans that are considered uncollectible and are in the process of being charged-off.

 

The following table presents the Company’s recorded investment in loans by credit quality indicators as of March 31, 2012.

 

($ in thousands)   Credit Quality Indicator (Grouped by Internally Assigned Grade)  
    Pass (Grades
1, 2, & 3)		     Weak Pass
(Grade 4)		     Watch or
Standard
Loans
(Grade 9)		     Special
Mention
Loans
(Grade 5)		     Classified
Loans
(Grades
6, 7, & 8)		     Nonaccrual
Loans		     Total  
Non-covered loans:                                                        
Commercial, financial, and agricultural:                                                        
Commercial - unsecured   $ 12,358       24,482       12       351       516       30       37,749  
Commercial - secured     32,963       68,885       1,926       2,180       2,486       1,751       110,191  
Secured by inventory and accounts receivable     2,988       17,409       273       741       37       822       22,270  
                                                         
Real estate – construction, land development & other land loans     36,024       158,110       5,601       9,972       13,585       20,469       243,761  
                                                         
Real estate – residential, farmland, and multi-family     257,460       471,300       9,090       15,266       30,270       25,819       809,205  
                                                         
Real estate – home equity lines of credit     131,859       67,707       2,401       1,734       1,720       2,909       208,330  
                                                         
Real estate - commercial     139,227       396,810       26,638       12,939       14,654       15,017       605,285  
                                                         
Consumer     29,318       23,111       69       380       667       2,848       56,393  
Total   $ 642,197       1,227,814       46,010       43,563       63,935       69,665       2,093,184  
Unamortized net deferred loan costs                                                     1,340  
Total non-covered loans                                                   $ 2,094,524  
                                                         
Total covered loans   $ 58,543       146,588       —       9,216       85,384       42,369       342,100  
                                                         
Total loans   $ 700,740       1,374,402       46,010       52,779       149,319       112,034       2,436,624  

 

At March 31, 2012, there was an insignificant amount of non-covered loans that were graded “8” with an accruing status. At March 31, 2012, there were no covered loans that were graded “8” with an accruing status.

 

The following table presents the Company’s recorded investment in loans by credit quality indicators as of December 31, 2011.

 

($ in thousands)   Credit Quality Indicator (Grouped by Internally Assigned Grade)  
    Pass (Grades
1, 2, & 3)		     Weak Pass
(Grade 4)		     Watch or
Standard
Loans
(Grade 9)		     Special
Mention
Loans
(Grade 5)		     Classified
Loans
(Grades
6, 7, & 8)		     Nonaccrual
Loans		     Total  
Non-covered loans:                                                        
Commercial, financial, and agricultural:                                                        
Commercial - unsecured   $ 13,516       23,735       13       217       845       452       38,778  
Commercial - secured     36,587       66,105       1,912       2,196       2,761       2,190       111,751  
Secured by inventory and accounts receivable     3,756       16,197       282       756       249       588       21,828  
                                                         
Real estate – construction, land development & other land loans     37,596       156,651       6,490       9,903       13,393       22,772       246,805  
                                                         
Real estate – residential, farmland, and multi-family     257,163       456,188       10,248       17,687       28,939       25,430       795,655  
                                                         
Real estate – home equity lines of credit     130,913       67,606       2,422       1,868       1,466       3,161       207,436  
                                                         
Real estate - commercial     140,577       372,614       30,722       11,502       15,565       16,203       587,183  
                                                         
Consumer     30,693       23,550       67       368       988       2,770       58,436  
Total   $ 650,801       1,182,646       52,156       44,497       64,206       73,566       2,067,872  
Unamortized net deferred loan costs                                                     1,280  
Total non-covered loans                                                   $ 2,069,152  
                                                         
Total covered loans   $ 62,052       161,508       —       8,033       88,169       41,472       361,234  
                                                         
Total loans   $ 712,853       1,344,154       52,156       52,530       152,375       115,038       2,430,386  

 

At December 31, 2011, there was an insignificant amount of non-covered loans that were graded “8” with an accruing status. At December 31, 2011, there were no covered loans that were graded “8” with an accruing status.

 

Troubled Debt Restructurings

 

The restructuring of a loan is considered a “troubled debt restructuring” if both (i) the borrower is experiencing financial difficulties and (ii) the creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses.

 

The vast majority of the Company’s troubled debt restructurings modified during the period ended March 31, 2012 related to interest rate reductions combined with restructured amortization schedules. The Company does not grant principal forgiveness.

 

All loans classified as troubled debt restructurings are considered to be impaired and are evaluated as such for determination of the allowance for loan losses. The Company’s troubled debt restructurings can be classified as either nonaccrual or accruing based on the loan’s payment status. The troubled debt restructurings that are nonaccrual are reported within the nonaccrual loan totals presented previously.

 

The following table presents information related to loans modified in a troubled debt restructuring during the three-months ended March 31, 2012.

 

($ in thousands)   For the three months ended
March 31, 2012		  
    Number of
Contracts		     Restructured
Balances		  
Non-covered TDRs – Accruing     —     $ —  
                 
Non-covered TDRs - Nonaccrual     —       —  
                 
Total non-covered TDRs arising during period     —     $ —  
                 
Total covered TDRs arising during period– Accruing     3     $ 1,914  
Total covered TDRs arising during period – Nonaccrual     —       —  
                 
Total TDRs arising during period     3     $ 1,914  

 

Accruing restructured loans that defaulted during the three months ended March 31, 2012 are presented in the table below. The Company considers a loan to have defaulted when it becomes 90 or more days delinquent under the modified terms, has been transferred to nonaccrual status, or has been transferred to other real estate owned.

 

($ in thousands)   For the three months ended
March 31, 2012		  
    Number of
Contracts		     Recorded
Investment		  
Non-covered accruing TDRs that subsequently defaulted                
Real estate – construction, land development & other land loans     2     $ 664  
                 
Total non-covered TDRs that subsequently defaulted     2     $ 664  
                 
Total accruing covered TDRs that subsequently defaulted     11     $ 2,711  
                 
Total accruing TDRs that subsequently defaulted     13     $ 3,375